It Was 'Time To Sell,' L.v. Farmers President Says At Annual Meeting

March 13, 1986|by TOM MOYLAN, The Morning Call

The president of Lehigh Valley Farmers yesterday told members of the dairy cooperative that the recent $17-million sale of most assets of Atlantic Processing Inc. of Whitehall Township was done because it was "time to sell" and because of the uncertain future of the dairy industry.

A few of the several hundred dairy farmers who attended the cooperative's annual meeting in Lancaster, however, indicated they were disappointed that Atlantic, which had been owned by Lehigh Valley Farmers and four other dairy cooperatives, was sold. "We have really become part of what we were fighting," said one farmer. "We have become one more milk pooler."

Officers of the Lansdale-based Lehigh Valley Farmers cooperative disclosed for the first time since the sale was announced Feb. 27 that Johanna Farms Inc. of Flemington, N.J., paid a book value of $17 million for Atlantic's five milk and dairy product plants. Johanna will operate the plants as a subsidiary, Lehigh Valley Dairies Inc., they said.

Atlantic will continue to operate with a four-person "skeleton crew" and will manage milk supplies by buying milk from its five cooperatives and selling it to Lehigh Valley Dairies and other dairy food processors.

James Compton of Compton Associates said the contracts include one to supply at least 33 million pounds of milk per month to a local Beatrice Cos. Inc. cheese plant and a new, 10-year contract to supply 70 million pounds of milk per month to Lehigh Valley Dairies.

Compton said he doubted the sale would have gone through without a guaranteed supply of milk. "The guaranteed market will continue," President Alpheus Ruth told the dairymen. "You're assured of a dairy outlet for your milk."

General Manager William Stout said that the new ownership will change some procedures for delivering milk but did not specify what they were. Ruth later said he did not know what plants Johanna might close and that the question was not asked during negotiations.

Compton said that what remains of Atlantic is projecting revenues of $6.5 million a year and operating income of $4 million this year and $4.5 million in subsequent years. Of that amount, he said, $2.5 million this year and later close to $3 million will be available for dividends or retained earnings.

Under Atlantic's proposed capital plan, proceeds from the sale and from income will be paid out to farmers who have acquired equity in Atlantic since its founding in 1980. He said the plan is to eventually give all five cooperatives equal shares in Atlantic.

Lehigh Valley Farmers owned $9.98 million of Atlantic, or about 73 percent.

Compton said that underthe plan, equity acquired in Atlantic between 1981 and 1984 will be paid back over the next three years. After that, equity acquired in the preceding three years will be paid out on a three-year revolving basis.

In 1990, Atlantic will pay out earnings retained over the previous three years if those earnings are not required for continued growth of Atlantic.

Twenty percent dividends on earnings will be paid in all years.

The surviving Atlantic will have a capital base of $8.2 million, Compton said.

Compton said that in 1987, the typical payment to a Lehigh Valley Farmers member who ships at least 700,000 pounds of milk a year will be about $3,300. In 1988 and 1989, the amounts would be $1,700.

Ruth said that Atlantic previously explored other mergers, joint ventures and sales involving other cooperatives, proprietary companies and diversified industries "to find additional ways to make more money and to make our investments grow."

He said none of the discussions worked out until Johanna Farms approached the processor.

"There's a time to buy and a time to sell," Ruth said in explaining the sale. He said some cooperative members may have "felt some security in the bricks and mortar" of Atlantic, which was born out of the old financially ailing Lehigh Valley Cooperative Farmers, but he said the directors thought "there appeared little likelihood that this opportunity would strike again."

He said the directors also decided to sell "because of the uncertainty of the future."

He said operating margins in the industry are shrinking and that the market is unpredictable.

"We are in an uncertain economic squeeze," Ruth said.

He added that the directors "had a responsibility to do what's best for the producers." He said the sale will bring themilk of the cooperatives to the Philadelphia and New Jersey markets, where Johanna sells.

During a question-and-answer period, one farmer asked if the directors had considered selling Atlantic back to Lehigh Valley Farmers, an option he said was left open when Atlantic was split away from Lehigh Valley Cooperative Farmers. Ruth said the directors felt a fiduciary responsibility "to sell it for the most dollars available."